Reschedulings as the Groundwork for the Secondary Market in Sovereign Debt

The secondary market in the debt of less developed countries, now known as the ‘emerging markets', has been newsworthy throughout the 1990s because of its explosive growth and the profitability of some investments in these markets. However, few appreciate how the strategy of repeated reschedulings in the 1980s laid the groundwork for the subsequent rapid development of this market. This little known role of the reschedulings is the focus of this article. The first response of the international commercial banks to the debt crisis in 1982 was to reschedule the current debt of the less developed countries, as the ‘emerging markets' were then known, and extend fresh loans to permit the payment of interest upon the rescheduled debt. This remained the standard response throughout the 1980s and received the imprimatur of the U.S. government in the Baker Plan